COMPANIES QUESTIONS AND ANSWERS GRADE 12

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COMPANIES QUESTIONS AND ANSWERS GRADE 12

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Activity 1: Typical examination questions

Worked example 1 Use the following information to complete the ledger accounts given on the answer sheet for kwik fix ltd for the financial year ended 30 June 2011. Information			To calculate the average share price, use this figure and divide it by the no. of shares issued. 1 000 000 ÷ 500 000 shares = R2 ↓
1	1 July 2010	At the beginning of the year, the company had the following opening balances: Ordinary share capital (500 000 shares) Retained income SARS (Income tax) Shareholders for dividends	R1 000 000 180 000 (ct) 9 000 130 000
2	1 July 2010	Issued 50 000 shares to the public at R7,50 per share
3	23 July 2010	Paid the amounts owing to SARS and the shareholders.
4	31 December 2010	A first provisional tax payment of R112 500 was made to SARS half-way through the financial year.
5	31 December 2010	An interim dividend of 15 cents per share was paid to shareholders.
6	31 March 2011	Bought back 20 000 shares from a disgruntled shareholder. The directors decided to buy back these shares at R8,50 per share.
7	30 June 2011	A second provisional tax payment of R120 000 was made to SARS at the end of the financial year.
8	30 June 2011	Final dividends of 30 cents per share were declared at the AGM but have not yet been paid to the shareholders.
9	30 June 2011	After the completion of the audit, the income tax figure for the year was determined as R240 000. This was calculated on a net profit figure of R800 000.
10	30 June 2011	Show the closing transfers to the final accounts.

Notes below refer to the information above and to the ledger accounts below ( 1 – 10):

The balances for SARS (Income tax) and Shareholders for dividends are the amounts that were not paid last year and need to be paid this year.

Shares issued to the public at issue price of R7,50 per share

The amounts owing to SARS and the shareholders from last year are now being paid.

4
7

The first provisional tax payment is always made half-way (6 months) into the financial year and the second provisional tax payment is made at the end of the financial year.

The interim dividend is paid during the year

The final dividend is declared (not paid) at the end of the financial year.

Shares bought back at R8,50 per share from a shareholder. New average price to be calculated. To calculate average price, find the value of Ordinary Share Capital, R1 375 000 ÷ 55 000 = R2,50). It means that you’re only going to claim R2,50 per share and the rest will be claimed from Retained Income.

The income tax figure for the year is the amount of tax the company owes calculated on the net profit for the year. This needs to be compared to the provisional tax payments made to see whether the company owes SARS more tax (liability) or whether SARS owes the company (asset). The net profit of R800 000 is calculated in the Profit and Loss Account and transferred to the Appropriation Account.

The final accounts include the Trading Account, Profit and Loss Account (covered in this example) and the Appropriation Account.

EXAMPLE OF A TRADING ACCOUNT AND PROFIT AND LOSS ACCOUNT (exactly the same as a sole trader or partnership)
TRADING ACCOUNT (F1)

2011 June	28	Cost of Sales	GJ	300 000	2011 June	28	Sales	GJ	1 470 000
		Profit and loss	GJ	1 170 000					1 470 000
				1 470 000

PROFIT AND LOSS ACCOUNT (F2) N

2011 June	28	Salaries	GJ	130 000	2011 June	28	Trading account (gross profit)	GJ	1 170 000
		Directors fees (new)	GJ	160 000			Rent Income	GJ	24 000
		Audit fees (new)	GJ	40 000			Profit on sale of asset	GJ	16 000
		Provision on bad debts adjustment	GJ	1 000				GJ
		Water and electricity	GJ	29 000
		Telephone / cell phones	GJ	50 000
		Appropriation		800 000
				1 210 000					1 210 000

General Ledger of Kwik Fix Ltd

Shares issued: 500 000 + 50 000 = 550 000 shares issued.

Average price of shares:
R1 000 000 + R375 000 = R1 375 000
R1 375 000 ÷ 550 000 shares = R2,50

Balance Sheet Section Dr Ordinary Share Capital Cr
2011 Mar	31	Bank 6 (20 000 × R2,50)	CPJ	50 000	2010 July	1	Balance	b/d	1 000 000
						31	Bank 2 (50 000 × R7,50)	GJ	375 000
		Balance	c/d	1 325 000
				1 375 000					1 375 000
					2011 July	1	Balance	b/d	1 325 000

Balance Sheet Section Dr SARS (Income tax) Cr
2010 July	23	Bank	CPJ	9 000	2010 July	1	Balance	b/d	9 000
2010 Dec	31	Bank	CPJ	112 500	2011 June	30	Income tax	GJ	240 000
2011 June	30	Bank	CPJ	120 000
		Balance	c/d	7 500					249 000
				249 000
					2011 July	1	Balance	b/d	7 500

The Income Tax assessment was more than the provisional payments. Therefore the balance is on the credit side making it a liability (Trade and Other Payables).

Nominal Accounts Section Dr INCOME TAX Cr
2011 June	30	SARS (Income tax)	GJ	240 000	2011 June	Appropriation 10	GJ	240 000

Balance Sheet Section Dr SHAREHOLDERS FOR DIVIDENDS Cr
2010 July	23	Bank	CPJ	130 000	2010 July	1	Balance	b/d	130 000
2011 June	30	Balance	c/d	159 000	2011 June	1	Dividends on ordinary shares	GJ	159 000
				289 000					289 000
					2011 July	1	Balance	b/d	159 000

The R159 000 is the final dividend and is still owing to the shareholders. This is a liability (Trade and Other Payables).

Nominal accounts section Dr DIVIDENDS ON ORDINARY SHARES Cr
2010 Dec	31	Bank (550 000 × 0.15)	CPJ	82 500	2011 June	30	Appropriation	GJ	241 500
2011 June	30	Shareholders for dividends 8 (530 000 × 0.30)	GJ	159 000
				241 500					241 500

There are three different ways of preparing the Appropriation account. Choose the alternative that you have been taught.
Option 1: The Retained Income for the year is transferred from the Appropriation account to the Retained Income account.

Balance Sheet Section Dr RETAINED ACCOUNT Cr
2011 Mar	31	Bank (20 000 × R6)	GJ	120 000	2011 June	30	Balance	b/d	180 000
June	30	Balance	c/d	378 500			Appropriation	GJ	318 500

				498 500					498 500
					July	1	Balance		378 500

Final accounts section Dr APPROPRIATION ACCOUNT Cr
2011 June	30	Income tax	GJ	240 000	2011 June	30	Profit & loss	GJ	800 000
		Dividends on ordinary shares	GJ	241 500
		Retained income	GJ	318 500
				800 000					800 000

Option 2: The Retained Income at the beginning of the year less the buy-back of shares adjustment is transferred to the Appropriation account. The Retained Income (after the share buy-back adjustment) at the end of the year is transferred from the Appropriation account to the Retained Income account

Balance sheet section Dr RETAINED ACCOUNT Cr
2011 Mar	31	Bank (20 000 × R6)	GJ	120 000	2010 July	1	Balance	b/d	180 000
June	30	Appropriation	GJ	60 000					180 000
					2011 June	Appropriation		GJ	378 500

Final accounts section Dr APPROPRIATION ACCOUNT Cr
2011 June	30	Income tax	GJ	240 000	2011 June	Profit & loss	GJ	800 000
		Dividends on ordinary shares	GJ	241 500		Retained Income (180 000 – 120 000)		60 000
		Retained income	GJ	378 500
				860 000				860 000

Option 3: The Retained Income at the beginning of the year is transferred to the Appropriation account.
The Retained Income (before the share buy-back adjustment) at the end of the year is transferred from the Appropriation account to the Retained Income account

Balance sheet section Dr RETAINED ACCOUNT Cr
2011 Ma	31	Bank (20 000 × R6)	GJ	120 000	2011 July	1	Balance	b/d	180 000
June	30	Appropriation	GJ	180 000	2011 June	30	Appropriation	GJ	498 500
		Balance	c/d	378 500
				678 500					678 500
					2011 July	1	Balance	b/d	378 500

Final accounts section Dr APPROPRIATION ACCOUNT Cr
2011 June	30	Income tax	GJ	240 000	2011 June	30	Profit & loss	GJ	800 000
		Dividends on ordinary shares	GJ	241 500			Retained Income		180 000
		Retained income	GJ	498 500
				980 000					980 000

Practice task 1
General ledger of kwik fix ltd
Balance sheet section

Dr Ordinary Share Capital Cr

Dr Retained Income Cr

Dr sars (Income tax) Cr

Dr Shareholders for Dividends Cr

Nominal section

Dr Income Tax Cr

Dr Dividends on Ordinary Shares Cr

Dr Dividends on Ordinary Shares Cr

Final accounts section

Dr Appropriation Account Cr

Worked Example 2
Prepare the Income statement for the year ended 30 June 2011.
Information
1. ANEESA LTD
PRE-ADJUSTMENT TRIAL BALANCE AS AT 30 JUNE 2011

	DEBIT	CREDIT
Balance Sheet Accounts Section	R	R
Ordinary share capital		2 820 000
Retained income		684 460
Mortgage loan: Joy Bank		804 500
Land and buildings	2 097 000
Vehicles	814 000
Equipment	616 000
Accumulated depreciation on vehicles		294 800
Accumulated depreciation on equipment		341 000
Trading stock	955 000
Consumable stores on hand	15 000
Bank	313 100
Petty cash	3 300
Debtors' control	396 000
Creditors' control		487 300
SARS (Income tax)(This amount is the provisional tax payment.)	261 800
Provision for bad debts		18 000
Fixed deposit: Broad Bank (8% p.a.)	495 000

Nominal Accounts Section
Sales		10 500 000
Debtors’ allowances (Remember to subtract debtors’ allowances from sales.)	145 200
Cost of sales	7 487 000
Rent income		176 880
Interest income (on fixed deposit)		26 630
Bad debts recovered		2 300
Directors' fees	840 000
Audit fees	73 800
Salaries and wages	660 000
Packing material	23 100
Marketing expenses	480 000
Sundry expenses	63 770
Bad debts	12 000
Ordinary share dividends (This is the interim dividend. DO NOT include on the Income Statement!)	404 800
	16 155 870	16 155 870

2. ADJUSTMENTS

A physical stock-taking on 30 June 2011 revealed the following inventories on hand:
Trading stock R902 150
Packing material R4 260
Directors' fees of R22 500 are outstanding at the end of the financial period.
Make provision for outstanding interest on a fixed deposit. This investment has been in existence for the entire year. Interest is not capitalised.
A debtor who owes us R32 000 has been declared insolvent. His estate paid 40 cents in every rand and this has been correctly recorded. The remaining balance must be written off as irrecoverable.
Provision for bad debts must be adjusted to 5% of debtors.
The rent included R14 520 for July 2011. Adjust accordingly.
Make provision for depreciation as follows:
Vehicles at 15% p.a. on cost price
Equipment at 10% p.a. on the diminishing balance method.
New equipment to the value of R48 000 was purchased on 1 September 2010. This has been correctly recorded.

The loan statement received from Joy Bank on 30 June 2011 reflected the following:

	R	(The total interest forms part of the repayment during the year. Capitalised means the interest is added onto the loan. You need to calculate this figure.)
Balance at the beginning of the financial year	1 125 000
Repayments during the year	458 000
Interest capitalised	?
Balance at the end of the financial year	804 500

Income tax for the year, R150 285.

Answer to worked example 2
1. Aneesa ltd : income statement for the year ended 30 june 2011

	Sales (10 500 000 – 145 200)	10 354 800
	Cost of sales (7 487 000)	(7 487 000)
	Gross profit	2 867 800
	Other operating income	164 660
F	Rent income (176 880 – 14 5203)	162 360
	Bad debt recovered (2 300)	3 2 300
	Gross operating income	3 032 460
	Operating expenses	(2 392 600) (This is the total of the operating expenses. REMEMBER to subtract this from gross operating income.)
B	Directors fees (840 000 + 22 500)	862 500
	Audit fees (73 800)	73 800
	Salaries and wages (660 000)	660 000
	A Packing material (23 1003 – 4 2603)	18 840
	Marketing expenses (480 000)	480 000
	Sundry expenses (63 770)	63 770
D	Bad debts (12 0003 +19 20033)	31 200
E	Provision for bad debts adjustment (18 840 3– 18 000)	840
G	Depreciation V: 122 100 3 E: 4 0003 + 22 700	148 800
A	Trading stock deficit	52 850
	Operating profit	639 860
C	Interest income(26 630 + 12 970)	39 600
	Profit before interest expenses/finance cost	679 460
H	Interest expenses/finance cost (458 000 + 804 500 – 1 125 000) or (1 125 000 – 458 000 – 804 500)	(137 500)
	Profit before tax	541 960
I	Income tax	(150 285)
	Net profit after tax	391 675

[52]

Worked example 3
Balance Sheet and notes
Use the following steps to prepare a balance sheet from the given information:

Enter the figures from the information given onto the answer sheet next to the details.
Read the additional information:
1. If necessary calculate the adjustment amount.
2. Decide on which account is to be debited and which account is to be credited.
3. On your answer sheet reflect a (+) or a (–) in respect of each item next to the already entered pre-adjustment figure.
When all the additional information has been considered, calculate the final figures and write them in the column.

Example adapted from November 2009 NCS exam paper
Practice task 3
You are provided with information relating to Qwando Limited for the financial year ended 30 June 2011.
Prepare the Retained income note. (18)
Prepare the Balance Sheet on 30 June 2011. (36)
Information

The following figures were taken from the financial records of the financial year ended 30 June 2011.

	R
Ordinary share capital (see information 2 below)	2 400 000
Retained income (on 1 July 2010)	738 000
Shareholders for dividends (see information 4 below)	60 000
Fixed deposit at Supa Bank (see information 5 below)	?
Mortgage Bond from Supa Bank (see information 7 below)	3 881 000
Fixed/tangible assets	?
Debtors’ control	45 000
Creditors’ control	85 200
Creditors for salaries	12 300
Provision for bad debts (see Information 6 below)	?
SARS (Income tax – provisional tax payments)	400 000
SARS (PAYE)	6 650
Expenses payable (accrued)	7 200
Income receivable (accrued)	7 950
Bank (favourable balance)	168 450
Trading stock	129 600
Consumable stores on hand	5 600

Shares:
- There were 700 000 ordinary shares in issue at the beginning of the financial year.
- On 1 January 2011, 100 000 ordinary shares were issued to the public at R3,80 cents per share. This has been correctly recorded and is included in the figures above.
- On 1 June 2011, 40 000 were repurchased from a shareholder at R4,50 per share. A direct transfer was put through from the Bank account but no entry has been made in the books.
The net profit before tax for the year ended 30 June 2011 was calculated as R1 250 000. No entry for income tax calculated at a rate of 30% of the net profit has been made.
Dividends were as follows:
- Interim dividends of 20 cents per share were paid on 31 December 2010.
- Final dividends of 35 cents per share were declared on 30 June 2011. All shareholders at this date qualify for dividends.
One third of the total fixed deposits mature on 31 August 2011.
Provision for bad debts must be adjusted to 5% of debtors.

The loan statement from Supa Bank on 30 June 2011 reflects the following:

SUPA BANK
LOAN STATEMENT ON 30 JUNE 2011
Balance on 1 July 2010	R384 000
Interest charged	57 600
Monthly instalments in terms of the loan agreement (12 × R8 800) (These monthly instalments include interest on the capital repayments of the loan) (The monthly capital repayments on the loan will remain constant until the loan has been paid in full on 30 June 2019.	105 600
Balance on 30 June 2011	R336 000

Answers to practice task 3

	RETAINED INCOME	R
	Balance on the last day of the previous year	738 000
3	Net profit after tax for the period(1 250 000 – 30%)	875 000
2	Retained income on 40 000 shares repurchased (40 000 × R1,50)	(60 000)
(Total dividends (interim and final) are shown here.)→	Ordinary share dividends	(406 000)
4	Paid (interim) (700 000 shares × 20c)	140 000
2 & 4	Recommended (final) (760 000 shares × 35c)	266 000
	Balance on the last day of the current year	1 147 000

[16]

Qwando Limited
Balance Sheet on 30 June 2011

	ASSETS
	NON CURRENT ASSETS	3 921 000
	Fixed / tangible assets (4 021 000)	3 881 000 (Fixed assets are always shown at book value on the Balance Sheet.)
	Financial assets
5	Fixed deposit: Supra Bank (60 000 – 20 000)	40 000
	CURRENT ASSETS	219 350
	Inventories (129 6003 + 5 600)	135 200
6	Trade and other receivables (45 0003 + 7 9503 – 2 2503 + 25 000) (Amount owed by SARS to the business. This implies the business overpaid its taxes to SARS.)	75 700
5	Cash and cash equivalents (168 450 + 20 000 – 120 000- 60 000)	8 450
	TOTAL ASSETS	4 140 350
	EQUITY AND LIABILITIES
	CAPITAL AND RESERVES	3 427 000
2	Ordinary share capital (2 400 000 – 120 000)	2 280 000
2	Retained income (see note on previous page)	1 147 000
	NON-CURRENT LIABILITIES	288 000
	Mortgage loan: Supa Bank (336 000 – 48 000)	288 000
	CURRENT LIABILITIES	425 350
	Trade and other payables (85 200 + 12 300 + 6 650 + 7 200)	111 350
	Shareholders for dividends	266 000 (This is the final dividend declared at the end of the year).
	Current portion of loan	48 000
	TOTAL EQUITY AND LIABILITIES	4 140 350

[38]
The numbers in this column refer to the explanations on the next page.

Explanations of each adjustment

2. Shares:
The new issue of shares have been properly recorded. The repurchase of 40 000 shares at R4,50. The ordinary share capital account must be reduced by the average share price (2 400 000 ÷ 800 000 shares = R3)
The retained income account will be reduced by the difference between the buyback price and average price ( R4,50 – R3 = R1,50 × 40 000 shares)

3. Net profit after tax must be calculated by subtracting income tax from net profit before tax. This must be entered in the retained income note.
Tax calculation = (R1 250 000 × 30% = R375 000).
Net profit after tax = R1 250 000 – R375 000 = R875 000).

4. Dividends:
Calculation of interim/paid dividends = 700 000 × 20 cents = R140 000
Calculation of final/declared dividends = 700 000 + 100 000 (issued) – 40 000 (repurchased) = 760 000 shares
760 000 × 35 cents = R266 000
Total dividends = R140 000 + R266 000 = R406 000

5.Calculation of short term portion of fixed deposit:
The portion of the fixed deposit that will be received within the next 12 months must be subtracted from financial assets and shown under cash and cash equivalents under current assets on the balance sheet.
(1/3 of R60 000 = R20 000)

6. Provision for bad debts is calculated at 5% of debtors control: 5% of R45 000 = R2 250.
Provision for bad debts must be subtracted from trade and other receivables.

7. Repayments of the capital amount of the loan that will be made in the next 12 months must be subtracted from the non-current liabilities and shown under current liabilities as a ‘current portion of loan’.
R105 600 (total repayments) – R57 600 (interest) = R48 000 (capital portion of repayments for the year.

Practice task 3 (continued)

RETAINED INCOME	R
Balance on the last day of the previous year


Balance on the last day of the current year


QWANDO LIMITED BALANCE SHEET ON 30 JUNE 2011
ASSETS
NON CURRENT ASSETS
Fixed/tangible assets
Financial assets
Fixed deposit: Supra Bank

CURRENT ASSETS


TOTAL ASSETS

EQUITY AND LIABILITIES
CAPITAL AND RESERVES


NON-CURRENT LIABILITIES
Mortgage loan: Supa Bank

CURRENT LIABILITIES


TOTAL EQUITY AND LIABILITIES

[38]

Worked example 4
Preparation of the cash flow statement
Practice task 4
Prepare the cash flow statement (all relevant notes have been done for you). (15)
Additional information
Extract from balance sheet

	2012	2011	Flow of cash (Remember we are looking for the flow of cash. This means you will need to calculate the difference between this year’s and last year’s figures, to determine the figures to place on the Cash Flow Statement.)
Ordinary share capital	R471 600	R410 000	**see note below
Retained income	R10 400	R9 000	This has no effect on a cash flow statement.
Fixed deposit	R28 000	R23 000	(R5 000)	(Outflow)
Loan from Beta Bank (interest is not capitalised)	R74 000	R80 000	(R6 000)	(Outflow)
Bank	R35 300	R10 040	R25 260	Inflow
Cash float	R2 000	R2 000	R0	No change

** During the year the following transactions took place regarding share capital:

8 000 Shares were issued and the company received R79 600 from shareholders.
Repurchased 3 000 shares at 820 cents per share

Worked example 5: Comment on the liquidity position of the company

Financial indicator	2010	2011
Current ratio	1,3 : 1	2,1 : 1
Acid test ratio	0,6 : 1	1,4 : 1

Current ratio 3 has improved from 1,3 : 1 to 2,1 : 1(It means that the company has current assets of R2,10 for every R1 debt.)
Acid test ratio 3 has also improved from 0,6 : 1 to 1,4 : 1
This company is in a good liquidity position and should be able to pay its short-term debt easily. [5]

Worked example 6: Comment on the earnings per share (EPS) and dividends per share (DPS) of the company
Earnings per share is the ‘if’; if all the profit after tax was declared as dividends, the earnings would have been 35c per share. However what “really happened” is that dividends were declared of only 25c per share. The difference is the profit that the company kept called ‘retained income’.

Financial indicator	2010	2011
Earnings per share (EPS)	35c per share	15c per share
Dividends per share (DPS)	25c per share	20c per share

EPS has declined from 35c to 15c per share.
DPS has declined from 25c to 20c per share.
In 2010 their EPS was 35c while the DPS was only 25c per share. This means that the company retained 10c per share for future growth.
In 2011 they only earned 15c per share but gave the shareholders 20c per share meaning that none of this year’s profits were retained.
(It’s the ‘if’! If all the profit after tax was declared a dividend, they would have earned 15c per share. However, the shareholders received more, being 20c per share. That means that some of the retained income of the previous year was used to finance the difference.)
[6]

Worked example 7: Comment on the debt/equity ratio of the company

Financial indicator	2010	2011
Debt/equity ratio	0.6:1	0,4:1

Debt/equity ratio decreased3 by 0,2 from 0,6 : 1 to 0,4 : 1.
By repaying the loan the company has a lower financial risk. [3]

Worked example 8: Comment on the percentage return on shareholders’ equity (ROSHE) of the company

Financial indicator	2010	2011
% return on shareholders’ equity (ROSHE)	18 %	24 %

ROSHE improved3 by 6 % from 18 % to 24 %.
The shareholders should be pleased as a return of 24 % is higher than an alternative investment (e.g. fixed deposit). [3]

Formulae: Financial indicators

Financial indicator	How it is calculated - formula	Answer shown as/in
1. Gross profit on cost of sales (mark-up)	Gross profit × 100 Cost of sales 1	%
2. Gross profit on sales	Gross profit × 100 Sales 1	%
3. Operating expenses on sales	Operating expenses × 100 Sales 1	%
4. Operating profit on sales	Operating profit × 100 Sales 1	%
5. Net profit after tax on sales	Net profit after tax × 100 Sales 1	%
6 .Solvency ratio	Total assets : Total liabilities	Ratio (ℵ : 1)
7. Net assets (shareholders’ equity)	Total assets − Total liabilities	Rands
8. Current ratio	Current assets : Current liabilities	Ratio (ℵ : 1)
9. Acid-test ratio	(Receivables + cash) : Current liabilities OR (Current assets – inventories) : Current liabilities	Ratio (ℵ : 1)
10. Turnover rate of stock	Cost of sales Average stock	Times per year
11. Period for which enough stock is on hand/period of stock on hand (stock holding period)	Average stock × 365 Cost of sales 1	Number of days
12. Debtors average collection period	Average debtors × 365 Credit sales 1	Number of days
13. Creditors average payment period	Average creditors × 365 Credit sales 1	Number of days
14. Debt/equity ratio	Non-current liabilities : Shareholders’ equity	Ratio (ℵ : 1)
15. Return on equity (shareholders’ equity)	Net profit after tax × 100 Average shareholders’ equity 1	%
16. Return on total capital employed	Net profit before tax + interest on loans × 100 Average shareholders’ equity + average loans 1	%
17. Earnings per share (‘if’)	Net profit after tax × 100 Number of issued shares 1	Cents
18. Dividends per share (what really happened)	Interim & final dividends × 100 Number of issued shares 1	Cents
19. Net asset value per share (this is the real value of the share)	Shareholders’ equity × 100 Number of issued shares 1	Cents

OTHER IMPORTANT FORMULAE:
To calculate the selling price (SP): Shareholders’ equity = Ordinary share capital + Retained income
SP = CP × 100 + mark-up
100
To calculate the cost price (CP):
CP = SP × 100
100 + mark-up

Worked example 9
(This question shows some of the basic financial indicators that will help you earn easy marks)
You are provided with information relating to Glebo Limited for the year ended 30 June 2011.
Practice task 5
Use the given information to calculate the following financial indicators for 2011. (31)

% Gross profit on cost of sales (mark-up)
% Net profit on sales
% Operating profit on sales
Current ratio
Acid test ratio
Debt/equity ratio
Solvency ratio
Net asset value per share
Earnings per share

Information
Glebo Limited
Extrac t from income statement for the year ended 30 june 2011

	2011
Sales	9 000 000
Cost of sales	5 625 000
Operating profit	1 423 200
Income tax	426 000
Net profit after tax	904 000

Glebo limited
Balance sheet as at 30 june 2011

	2011
ASSETS
Non-current assets	4 626 000
Fixed assets	4 326 000
Financial assets	300 000
Current assets	2 557 000
Inventories (all trading stock)	1 640 000
Trade and other receivables (all trade debtors)	810 000
SARS (Income tax)	0
Cash and cash equivalents	107 000
TOTAL ASSETS	7 183 000
EQUITY AND LIABILITIES
Ordinary shareholders’ equity	4 123 000
Ordinary share capital (1 100 000 shares )	2 910 000
Retained income	1 213 000
Non-current liabilities	1 980 000
Mortgage loan: Jozi Bank (13% p.a.)	1 980 000
Current liabilities	1 080 000
Trade and other payables (all trade creditors)	705 000
SARS (Income tax)	32 000
Shareholders for dividends	275 000
Bank overdraft	0
Current portion of loan	68 000
TOTAL EQUITY AND LIABILITIES	7 183 000

Answer to practice task 5

1	Calculate % gross profit on cost of sales (mark-up) [4] (Sales – cost of sales) × 100 = 9 000 000 – 5 625 000 × 100 Cost of sales 5 625 000 = 3 375 000 × 100 5 625 000 = 60%
2	Calculate % net profit on sales [3] Net profit after tax × 100 = 904 000 × 100 Sales 9000 000 = 10%
3	Calculate % operating profit on sales [3] Operating profit × 100 = 1 423 000 × 100 Sales 9 000 000 = 15,8%
4	Calculate current ratio [3] Current assets ÷ current liabilities = 2 557 000 ÷ 1 080 000 = 2,4 : 1
5	Calculate acid-test ratio [4] (Current assets – stock) ÷ current liabilities = (2 557 000 – 1 640 000) ÷ 1 080 000 = 917 000 ÷ 1 080 000 = 0,85 : 1
6	Calculate debt/equity ratio [3] Non-current liabilities ÷ ordinary shareholders’ equity = 1 980 000 ÷ 4 123 000 = 0,48 : 1
7	Calculate solvency ratio [4] Total assets ÷ total liabilities = 7 183 000 ÷ (1 980 000 + 1 080 000) = 7 183 000 ÷ 3 060 000 = 2,3: 1
8	Calculate net asset value per share [4] Ordinary shareholders’ equity × 100 = 4 123 000 × 100 Number of shares issued 1 1 100 000 1 = 374,8 cents per share (Ordinary share capital ÷ par value of shares)
9	Calculate earnings per share [3] Net profit after tax × 100 = 904 000 × 100 Number of shares issued 1 1 100 000 1 = 82,2 cents per share

Multiply by 100 in order to get the answer in cents per share.

Published in Accounting Study Guide and Notes Grade 12

COMPANIES QUESTIONS AND ANSWERS GRADE 12

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